We find ourselves in unusual economic conditions, we have interest rates at historically low levels, expansive quantitative easing policies adopted by the world’s central banks. Inevitably this has caused a collapse in bond yields and fuelling Global equity markets. Closer to home in Europe we are experiencing the longest bull run in history.

With low interest rates likely for the coming years, pension investors need to consider the impact that long-term inflation will have on the real return of their assets. A relatively low rate of inflation can significantly erode the value of an asset over the long term. At a rate of 2.5% annual inflation, the value of an asset would be halved in 27 years. Luckily enough we are not quite at the 2.5% level in the Eurozone but continued aggressive QE programmes could see us heading towards the ECB’s 2% level.

While some people may not like the idea of taking investment risk, they may find themselves in a situation where the value of pension portfolios are actually decreasing in real money terms. As advisers we call this the risk associated with taking no risk at all. There are products and portfolios for all categories of individuals but it is important to have a portfolio that matches your needs and requirements.

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